WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) recently released a report highlighting the complicated and burdensome nature of the medical billing system in the United States. The report reveals that the U.S. healthcare system is supported by a billing, payments, collections, and credit reporting infrastructure where mistakes are common, and where patients often have difficulty getting these errors corrected or resolved.
“When it comes to medical bills, Americans are often caught in a doom loop between their medical provider and insurance company,” said CFPB Director Rohit Chopra. “Our credit reporting system is too often used as a tool to coerce and extort patients into paying medical bills they may not even owe.”
The report details how medical bills are often incurred through unexpected and emergency events, are subject to opaque pricing, and involve complicated insurance or charity care coverage and pricing rules. In emergency situations, patients might not even sign a billing agreement until after receiving treatment. In other instances, patients, including those with chronic illnesses or who are injured or ill, may desperately feel that the need for medical care forces them into accepting any costs for treatment.
When those bills end up in collections, the repercussions can be far-ranging. Medical bills placed on credit reports can result in reduced access to credit, increased risk of bankruptcy, avoidance of medical care, and difficulty securing employment, even when the bill itself is inaccurate or erroneous. The report outlines how these repercussions are especially acute for people from Black and Hispanic communities, as well as people with low incomes, veterans, older adults, and young adults of all races and ethnicities.
The report describes challenges and sources of confusion when a person’s medical bills go into collection or are placed on a credit report. Bills may be sent to collectors by doctors, hospitals, parent companies, or groups representing a service provider, so there may be multiple charges for the same visit. The total billed amount can quickly become unrecognizable, and the time and effort needed to parse legitimate charges from inaccurate ones can become unmanageable.
Among the other key findings of the report:
- Medical debt affects tens of millions of households: Roughly 20% of U.S. households report that they have medical debt. The CFPB found that medical collections tradelines appear on 43 million credit reports. As of the second quarter of 2021, 58% of bills that are in collections and on people’s credit records are medical bills.
- COVID-19 has made the situation worse: Both uninsured and insured patients incurred substantial costs to cover COVID-19 related services, including testing and hospitalization. To the extent people deferred routine care during the pandemic, costs and medical debt are expected to increase post-pandemic.
- Medical debt affects households unevenly: Past-due medical debt is more prevalent among Black (28%) and Hispanic (22%) individuals than white (17%) and Asian (10%) individuals. Medical debt is also more common in the Southeastern and Southwestern U.S., in part because states in those regions did not expand Medicaid coverage.
- Medical debt weakens underwriting accuracy: Previous research by the CFPB has shown that medical billing data on a credit report is less predictive of future repayment than reporting on traditional credit obligations. Some newer credit scoring models weigh medical collections tradelines less heavily, with dramatic effects; an updated FICO model resulted in an average 25-point increase in consumers’ scores. However, there has been very little adoption so far, and the most widely-used models use the older, less accurate approach. As a result, people with medical debt, who are disproportionately Black and Hispanic, continue to be penalized with lower credit scores.
The CFPB will act to ensure that the consumer credit reporting system is not used coercively against patients and their families to force them to pay questionable medical bills. Specifically, the CFPB intends to:
- Hold credit reporting companies accountable: Federal law requires credit reporting companies to have reasonable procedures in place to assure that medical debt on consumer reports is accurate. Those procedures must include, if necessary, taking action against furnishers who routinely report inaccurate information. If furnishers, of medical debt or otherwise, are contaminating the credit reporting system with inaccurate reports, the CFPB expects the Big Three agencies to cut off their access to the system.
- Work with federal partners to reduce coercive credit reporting: The CFPB is working with the U.S. Department of Health and Human Services to ensure that patients are not coerced into paying bills more than the amounts due. In January, the CFPB issued a compliance bulletin that reminded debt collectors, credit reporting companies, and others that it is illegal to collect or report as owing a debt that is not legally due and owing, including where the billed amount violates the No Surprises Act. The CFPB also supported that will reduce financial distress for veterans by requiring all other methods of debt collection to be exhausted before a veteran’s bill is reported to the credit reporting agencies. The CFPB will also further investigate, in cooperation with its federal partners, how best to facilitate patients’ access to financial assistance programs offered by medical providers.
- Determine whether unpaid medical billing data should be included in credit reports: The CFPB will conduct additional research on how medical billing, collections, and credit reporting practices affect patients and families. Informed by those findings, the CFPB will assess whether consumer credit reports should include data on unpaid medical bills.
Read the CFPB’s full report, Medical Debt Burden in the United States.
Consumers having an issue resolving a medical debt or facing a problem with other consumer financial products or services can submit a complaint with the CFPB online or by calling (855) 411-CFPB (2372).